Keep an eye on the taxman

KERRI JACKSON
Last updated 11:00 04/02/2013

Relevant offers

Small Business

Small retailers hurt as Auckland CDB rents soar Nurture Change: Icebreaker's Jeremy Moon talks business reinvention Bootleggers Craft Mixers raising Wellington spirits Tourist farmstays a silver bullet for struggling dairy farmers? My Food Bag advertising - stereotyped or smart? Payroll causing headaches among SMEs Young Havelock North entrepreneurs' Tukituki Thunder sauce sales firing New pies and new face for Washington Valley Store New luxury hot pools in Taupo add heat to a mid-winter holiday Soap labels printed at Taranaki Aviation Transportation and Technology Museum

‘Watch what the IRD is keeping an eye on’ is a tax expert's advice for small to medium business owners this year.

Ernst & Young tax partner Jo Doolan has six key tips for sme owners heading into 2013:

1. Cash transactions is one of the key areas the IRD is set to crack down on this year. When the economy gets tough traditionally some sme owners look to pay less tax by keeping jobs off the books and asking clients to pay cash. But Doolan said

the IRD is wise to the practices and will be keeping a keen eye out for them this year.

While it’s tempting to offer or accept cash transactions, Doolan said it’s important to remember the consequences.

‘‘It is illegal – it is evasion. Are the consequences really worth it?’’ she said, adding that the IRD has many ways of tracing such transactions.

‘‘Often that money is spent on traceable items.’’

One of the easiest ways to spot a business making a lot of cash transactions is when the sme owner isn’t drawing any money from the business to live on, Doolan said.

Finally, she said, often business owners will still issue invoices for cash transactions and then it’s just a matter of the IRD matching up paperwork.

2. Remember the Penny and Hooper tax case. In that benchmark IRD case, the orthopedic surgery practice fell foul of the IRD by underpaying themselves and using trusts to avoid falling into the 39 per cent tax bracket. The IRD requires that 80 per cent of profits are returned to employees and shareholders rather than into trusts.

3. Are your contractors really employees? Doolan said the IRD will be looking out for businesses which are disguising employees as independent contractors to make cost savings.

There are basic checks, she said. Are the contractors working from home? Are they using their own equipment?

‘‘Too often independent contractors are really full time employees. It’s one of the areas where business owners push back when times get tough.’’

4. Always pay your PAYE and GST. It might be telling people to suck eggs, but you’d be surprised at how often people think they can let it slide, said Doolan.

‘‘Never not pay your PAYE. It’s a criminal offence.’’

5. Retailers need to manage their stock carefully, and where possible supply regional stores based on sales records.

‘‘Inter-store transfers of stock are a really fast way to erode profit. Monitor closely what is selling and what is not in different locations and where possible order directly for each area.’’

Ad Feedback

6. Finally, Doolan said maintaining open communications with your bank will be crucial in the year ahead.

‘‘Let your bank know what times of the year you’re likely to need extra overdraft facilities.

‘‘Work with them, so it doesn’t come as a surprise to your bank when you need to extend your overdraft limit.

‘‘There’s a really changing mindset that means you can be much more pro-active in managing your accounts.’’

- Stuff

Special offers
Opinion poll

Do you feel better off than at this time last year?

Yes

No

In some areas yes, others no

Vote Result

Featured Promotions

Sponsored Content